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Flight Centre buys Topdeck Tours, posts record profit

Jamie Freed

"Short-term downturns are often followed by healthy uplifts in demand," says Flight Centre boss Graham Turner as the company buys a UK tour operator he founded four decades ago. Photo: Ben Rushton

Flight Centre Travel Group expects to report flat earnings in the first half for the first time since the global financial crisis amid weak consumer confidence, but expects a return to growth in the second half as travellers get "itchy feet" after the short-term lull.

"As the government actually gets the budget in order in some way or another it will give people a bit more confidence to spend up a bit more," Flight Centre managing director Graham Turner said. "A bit of finality about the budget would help consumers generally."

His comments came after Flight Centre reported a 10 per cent rise in underlying profit before tax to a record $376.5 million, in line with its latest guidance.

Flight Centre said it would target a 5 to 8 per cent rise in underlying profit before tax to $395 million to $405 million in the 2015 financial year. However, Flight Centre said it would target a first-half result broadly in line with the prior year and aim for accelerated growth in the second half.

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The guidance range given was below consensus expectations of $412 million ahead of the result. Flight Centre shares fell by as much as 4 per cent on Wednesday, but were trading 2 per cent, or 88 cents, lower at $46.56 at 12:40pm.

Bell Potter analyst John O'Shea said he remained "pretty comfortable" with the outlook. "History says with outbound [travel] the slowdown tends to be transitory," he said.

May and June were particularly weak months, following the release of the Federal Budget. However, Flight Centre chief operating officer Melanie Waters-Ryan said flight bookings had improved by 3 per cent in the month of July, while the overall market had declined by 1 per cent.

"It is not exactly where we would like it to be but it shows we are growing and certainly taking a bit of market share," she said.

In addition to its core business, Flight Centre is focused increasingly on becoming vertically integrated through selling tours from operators it owns, such as Back-Roads Touring and its new Buffalo Tours joint venture in Asia.

On Wednesday, Flight Centre announced the purchase of UK-based Topdeck Tours, a company co-founded by Mr Turner focused on tours for 18 to 30-somethings.

Flight Centre will buy 90 per cent of Topdeck in a deal that values the tour operator at a minimum of £21.84 million ($38.8 million). Mr Turner had owned 4 per cent of Topdeck before the deal, which was subject to an independent valuation by consultancy firm PricewaterhouseCoopers.

All of the UK tour operator's shareholders will sell their stakes to Flight Centre with the exception of Topdeck managing director James Nathan, who will hold the remaining 10 per cent and continue to oversee the business.

Mr Turner said Flight Centre would target further acquisitions in the youth travel sector.

"We are very interested in building a global youth business," he said. "We would like to get into other areas [besides tours] that 18- to 25-year-olds like to participate in."

He said gap year programs and building a bigger online youth business could be part of the plans.

Flight Centre declared a 97 cents a share final dividend, up from 91 cents a share the prior year.

Before the results were released, Flight Centre's shares had risen by 6.4 per cent over the last 12 months, compared with a 9.8 per cent rise for the benchmark S&P/ASX200 index over the same period.